The Big Move in Unemployment

06 Jun 2008

Posted by Andrew Samwick

The May employment report is another disappointment. Nonfarm employment fell another 49,000, marking a 324,000 decline (0.23%) since the peak in December. That headline will likely be overshadowed by the large increase in the unemployment rate, from 5.0% in April to 5.5% in May. Note that these two statistics come from different surveys--nonfarm employement is from a survey of establishments and the unemployment rate is from a survey of households.

What's behind the unemployment rate increase? The unemployment rate is the ratio of those unemployed to the civilian labor force (the sum of those employed plus those unemployed). Recall that you can be out of work but not counted as unemployed--to be unemployed, you have to be looking for work. When interpreting the numbers, we also have to be careful to acknowledge that these are net flows from the survey. For example, in May, according to the household survey:

577,000 people joined the labor force.

Some people joined the labor force. Some people left the labor force. The former group is larger than the latter by 577,000.

285,000 people left employment.

Some people gained new jobs. Some people lost their jobs. Most people in one of those groups are also in the other group. But in total, the latter group outnumbered the former group by 285,000.

If we add these two numbers together, we get a total flow into unemployment of 862,000, reported as 861,000 in the news release due to rounding. The number of unemployed increased by 861,000 on a base of 7,626,000, an increase of 11.3%. The labor force went up by 577,000 on a base of 153,957,000, an increase of 0.37%. The disparity accounts for the increase in the unemployment rate.

I have in the past noted that there are alternative measures of unemployment that include discouraged workers, marginally attached workers, and those employed part-time for economic reasons (see Table A-12 of the news release). In May, those alternative measures shared the 0.5 percentage point increase, suggesting that the net flow into the labor force was from those who were previously content enough to not be working that they didn't even register as marginally attached. That makes it more difficult to tell a single story from the net flows.

Nonetheless, we will likely hear this "spun" by those in office as having some good news in it, in that an improvement in the economic outlook may draw more people into the labor force to look for work. While that is true, and that may be happening, it is not appropriate to spin the increases in the labor force participation rate (here, from 66.0 to 66.2% of the population) as good news without also acknowledging that decreases in the labor force participation rate--of which there have been many--were bad news.

More importantly, it is simply too soon to know whether this is a blip or the start of a trend, good or bad.

As gas and food inflation get worse the non working spouses enter the job market to supplement shrinking real family income. Retirees look for jobs because their fixed incomes are being eroded. Also May/June the college students graduate and some start a job hunt, and teens are trying to find summer jobs too.

The figures are seasonally adjusted, so the return of college students and teens should not play a role, unless the numbers returning this year are large relative to numbers in past years.

I think your point about spouses returning, particularly returning from not having been even marginally attached, is spot on. If you are interested, here's a blog post from 2004 that described the process somewhat in reverse. The thread continues through this post.

Thanks for your careful reading of the blog and your excellent comments.

I think the large spike of teens is simply higher than the normally seasonally adjusted numbers. The survey is conducting in mid may and there shouldn't be that many teens out of school.

By my estimation, 45 percent of all new workers were teens, with a third of the increase in the unemployed being teens...that's some very large numbers for a group that is less than 5% of the total labor force.

There was an even larger jump from March to April...For example, the labor force of 20+ declined in that month, but the large numbers of teens entering the labor force exceeded the decline in the 20+ civilian labor force.

Teen LFP has jumped 7% From March to May, which seems very, very high, especially in a stagnant economy. I'm a bit skeptical of that increase given the macroeconomy and the fact that school is still in session.

This is anecdotal, but teens seem to be under greater pressure to find employment (the parents don't want to pay for their gas) here. Mid May is just after the AP (advanced placement tests) and I noticed a huge jump in teens seeking jobs once they got through those tests at our local high school.

The family budgets are pinched . . . local kids were choosing colleges this year based almost exclusively on which one gave them the best aid package or was the lowest price. Now they are under pressure to make money.

One of my Wall St. clients noted this morning that the Household Survey sample covers only 0.06% of households and that it showed an unemployment rate of 5.0% for each of the first four months of this year. Then, suddenly in May, it jumped to 5.5%. This is more likely volatility resulting from sampling error. Today's increase in the unemployment rate probably actually occurred more smoothly over the past five months.

Suan, I generally agree with you. I had breakfast at the local Waffle House two weeks ago and heard the manager say she had multiple shifts to fill but couldn't get any applicants. The jobs are there for the taking on the low end of the wage scale too.

Comparing Monster jobs with the availability is what our infamous president with Alzheimers did. Counting a programming job that get's outsourced to India with a waitress job is naive. They don't buy the cars and houses that fuel the economy.
I think I'll go Republican. Reduce my income, increase my spending, and accuse anyone who complains that they don't support the war on terrorism!!

The unemployment is in its alarming rate and sad to know that more people are losing their job because of this economic turmoil. The unemployment rate continues to rise affecting millions of Americans. On the other hand, this is not just the issue we are facing now; another issue is concerning about the need for unbiased reporting. Many have pointed out that an unbiased view has too great an influence. At any rate, unbiased reporting might be dead on CNBC. Rick Santelli put on a show that’s being dubbed the Chicago Tea Party. During his business news segment on CNBC, Santelli got on the floor of the Chicago stock exchange and went on a tangent were he extolled the virtue of giving gobs of money in a cash advance to Wall Street and advocated for everything including the execution of the average citizen. CNBC got called on their shenanigans, including both Santelli and Jim Cramer by Jon Stewart on The Daily Show, where the unbiased reporting is intentionally left out – but that’s called satire, not dereliction of duty.

Posted by Iyanna T on Mar 19th, 2009 at 4:23 am.

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